The TRUTH about Inflation in Nigeria – Will $1 Dollar = ₦1 Naira Ever?

Will 1 Nigerian Naira, ever equal 1 Dollar,
let’s take a look at this image floating across social media. Before I address this image, I went deep and
searched for the US Treasury Document reporting exchange rate in 1981. Actually I didn’t dig deep I just googled
it. Anyway, in 1981, $1 was equal to about 53
kobo, N0.5311 and at the end of the year, it was 0.6495 Naira or about 65 kobo for a
dollar. What this means was that in 1981, 40 years
ago, 1 million Naira was more than 1.5 million dollars. Wow, that feels so great saying it out loud. Do you know anyone that’s more that 40 years
old, how do they feel? It’s crazy to this that at some point, Naira
was worth more than Dubai’s currency.

Anyway, 10 years later in 1991, 1 million Naira became
about $100,000, That was a massive loss, about %1,500 lower
value 20 Years later in 2001, 1 million Naira became
about $8,800 Over %1,000 lost as well in value and 30 Years later in 2011, 1 million Naira became
about $6,300 40 years later now in 2021, this year, 1 million
Naira has become about $2,500 What’s your best guess for how much a million
Naira will be to dollar in the next decade? Comment below I’m interested in your thoughts. So it’s clear that there’s a decline,
massive one at that, and this made me wonder why exactly it’s this way and ask if Nigeria
can every have $1,000,000 being equal or almost equal to a million naira. Will this ever happen? I can probably guess your answer but let’s
talk. In this video, I’ll talk about inflation,
currency devaluation, and money, it’s finance Friday afterall. I’ll also talk about how Nigeria makes foreign
exchange or dollar, and no, Nigeria doesn’t get almost all her money from oil, it’s
significant though, and I’ll touch on the new economic policies we’re currently facing
and my advice for Nigerians watching and what to do with your hard earned money.

If this video interests you or you think you’ll
gain something from it, I’d love it if you could hit that like button so more people
can see the analysis we’ll be sharing and without further ado, let’s get to the video. First off, what is Inflation? According to Investopedia, and theoretically,
inflation is the decline of purchasing power of a given currency. So a country’s currency doesn’t have the
power to purchase the same item anymore or can only purchase it at a higher price.

One way that this shows is an increase in
the average price of goods. So a country would know the rate of inflation
when they calculate the general price level. Basically the currency can buy less than it
could before. So true story, this is my lovely headphone
that I’ve been using for 2 years now, about 2 years. I bought this in 2019 for around 60,500 Naira. Today, I get on Jumia and I see that in 2021,
the price is 120,000.

That is a 98% increase in price. Almost 100% increase or almost double the
price. Keep in ,mind that the dollar rate of this
item has not changed in 2 years and there are even discounts. That is an example of inflation. I tweeted this and a couple of people cited
a critical example. Bread was 250 Naira. Now it’s 500 Naira. Inflation. Inflation is really bad for an economy, it
correlates directly to the value of a country’s currency falling but what causes inflation? What causes inflation? One cause is the cost of production being
high, did you know that GTBank spent almost 7 billion Naira on diesel in a year? That just money burning to run generators
so that they can at least have electricity. Imagine how much less it would have been if
Nigeria had constant power supply. Because of these high costs of operating,
companies would pass down this expense to their customers in form of maintenance fees
or even higher prices for stuff. Same thing with when the cost of petrol is
high, when subsidy is gone.

Everything seems to become more expensive
because transportation of goods are now automatically more expensive when people fuel their vehicles. So next time that shop owner says rice don
cost, it probably is more costly because they paid more to transport the exact same tonne
of rice. Also when it comes to imports, when government
doesn’t provide dollars for food imports, people would have to source dollars on the
black market, the dollar on the black market is very very costly, this will almost instantly
translate again into the cost people charge. In Nigeria, the same thing you buy abroad,
when brought in has incurred numerous costs either in import duties which are so high,
especially for things like cars, so we are paying almost double what we would normally
pay for stuff. But do you know that there are people that
benefit from Inflation? A general rise in price. For instance, people who have bought land
or property. They would of course sell it at a much higher
amount that they’ve bought it.

So if you can, invest in property. There are 3 main ways Inflation comes into
an economy. Firstly, when there is more demand for stuff
than is available, the prices are high. A major example is when there was panic in
Nigeria that there would be fuel scarcity. Obviously this means that there won’t be
enough supply of fuel so petrol stations started increasing the price of fuel. Until the government stepped in a it went
back to “sort of Normal”. This is called Demand Pull Inflation. Secondly, we’ve got the Cost Push inflation
where the cost of raw materials have become high, so the producer of services pass the
cost down to people or customers. Like the rice example I gave, if the cost
of fuel increased for instance from say 50 Naira to 100 Naira, per liter, that’s double
what the rice seller pays. They would want to recoup their costs so they
make the bag of rice higher in price. Thirdly, we’ve got the Built in inflation,
which Is more common in Nigeria.

This one plays on the expectations or the
minds of people where they believe or fear that prices will rise, its seen on the news
all the time and people are expecting or subjectively believing something will happen. You can see all the time people are scared
that Naira will fall to dollar again, which causes some shock. The government is well aware of everything,
I hope, and they have put many things in place to try to save the economy. But before we get to that part. Let’s talk about Currency Devaluation and
How Nigeria as a country earns dollars or foreign exchange. What is Currency Devaluation? What does it mean when a country’s currency
is devaluated and why would a country willingly do that? Currency devaluation, simply put is when the
currency of one country, for example Naira is deliberately adjusted downward to the value
of another currency, or group of currencies. I’m going to touch on how Nigeria makes
her money but when we’re talking about devaluation, the main reason why a country does this is
for there to be a balance.

What balance? When a country, eg. Nigeria, sees that we’re buying more stuff,
importing than we’re selling, aka exporting. The currency is devalued so that the goods
produced can be cheaper currency wise and appeal to the buyers of our products the products
that we make in the hopes that we can export more stuff. Think of it like a bargain. However, a currency being devalued is one
of the worst cases for inflation in a country and the Nigerian currency has been devalued
a lot. Unfortunately, Nigeria is very agrarian; we
hardly do any manufacturing or services that we can export, so we're barely getting foreign
exchange from anywhere else but oil and for a country that doesn’t produce much, Nigeria
spends way more than she earns. So How does Nigeria earn Foreign Exchange
or Dollar? In 2010, over a decade ago, this is how Nigeria’s
inflows looked like. Oil accounted for 75% of our entire income
or over 76 billion dollars in 2010, then we have remittances, aka, people from the abroad
sending money into Nigeria being 20 billion and this is the one that the CBN has been
fighting for in years, that’s why we had the crypto ban, and many others which I’ll
touch on in a bit.

Investments into Nigeria were only about $6
billion and loans were about 1 billion dollars all in 2010. Fast forward to 2019, almost a decade later
and not far off from this year, the chart looks similar, Oil was $55 billion in 2019
which is lower, so Nigeria gets kind of worried. Investments were at $24 billion, and it was
on-par with remittances, about 24 billion. Non oil exports, $10 billion and loans over
$2 billion. Still almost half of Nigeria’s dollars or
foreign exchange comes from Oil that’s why oil prices really affects Nigeria and access
to dollar. Oil is enough to change things in Nigeria
if it goes bad or good. The 2nd biggest source of foreign exchange
is remittances and as I mentioned the CBN wants to guard this so much. So what is the government doing to protect
the Naira and at least let it stand twice as tall? Pun intended. Apart from the normal things like the Monetary
Policy Rates and Cash Reserve Ration for commercial banks, which are like the commercial banks
having their own savings accounts with the CBN.

The CBN has created the Naira for Dollar Scheme,
although it’s a short-lived program, for every 1 dollar you receive in Nigeria now,
you get 5 Naira, and I explain how this works in detail in a previous finance Friday video,
I’ll leave a link to it in the description below. The government also banned the importation
of Rice some years ago and Nigeria practically imports very little to no rice now, although
there’s news about rice being smuggled in. Another thing is that Nigerian government
has said that no single dollar will be provided for people who import food or fertilizer because
we have the resources and people, the statistics show us however that only 2.6 billion dollars
have been spend on food while 8.4 billion has been spend to import our very own petrol
and other fuels because we can’t properly refine them in Nigeria. The central bank has also said previously
that no dollar will be provided to people importing 45 items of which they were rice,
maize, milk, fertilizers and toothpicks and according to the stats, imports have gone
down for these items so these policies have sort of worked.

However, there was news about maize scarcity
since the import has been banned. Moving away from food and raw materials. The CBN has also tried to protect Nigeria’s
foreign reserves by Banning the banks from aiding the exchange of Bitcoin and other crypto
currencies. If you want to see all the full details about
that, watch my 2 videos about it. I talked in detail about why they banned bitcoin
trading through exchanges and I did a follow up video. In December of 2020, they also banned some
IMTO or International Money Transfer Organizations like transfer wise and I explained it in those
videos as well.

They did all this to protect the Naira from
arbitrage where people profit from the black market exchange rate while paying Nigerians
the normal rate. The CBN now said everyone must receive dollars
in cash or in domiciliary accounts and it must not be converted, this was a good move
in a way. Now, the SEC, the Security and Exchange commission
seems to be coming for companies that allow Nigerians invest in the U.S stock market. Again, a means of not letting dollars out
of the country and into the country unregulated. Bamboo and other investment apps have put
out statements regarding this but it’s a developing thing and I’ll be on the look
out if anything comes up. Make sure you’re subscribed. My first video this year was an experiment
where I made an extra $10,000 saving and investing, I can link that video below. It seems almost all the apps I mentioned on
that video have been targeted one way or the other. The thing is, people don’t want their money
just sitting in a Nigerian Bank account because the interest rate is so low. I know because I did try it and I lost almost
$5,000 just because I saved in Naira, no my money wasn’t stolen my money was just in
Naira and the country’s currency kept depreciating in value.

People want to keep their money in a growing
asset class, that’s why they invest in stocks, and real estate but it seems so hard earning
in a currency that one doesn’t know what the value would be eventually. Will 1 Naira equal to 1 Dollar, it’s not
hard to say, but it’s certainly not anytime soon. Maybe if our exports far outweigh our imports
consistently, maybe if we start producing cars, and exporting them to other countries
at scale, but that’s far out in the future.

I’m really interested in knowing your own
thoughts as well. An app I really recommend that people who
are earning in Naira should use is PiggyVest, first off they have an 8% per year interest
rate and I made about 100,000 naira in interest per saving portion just by using them. I’ll leave a link to their app below and
if you download through my link and deposit 1,000 Naira, you get another 1,000 Naira because
I referred you. This isn’t a sponsored video by them, it’s
an app I used as I mentioned in my first video this year. They did help me save a lot. If you’re more concerned about the rate
of the currency, I’d advice you ask your bank about opening a domiciliary account so
you can save your money in dollars as a hedge against inflation in Nigeria. Thank you so much for watching this video,
if you found it useful, please hit that like button and hit that subscribe button so you’ll
be the first to know when I post a new video. Thank you so much for watching and I’ll
talk to you in the very next video.

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